Call Buyers Scoop Up American Water Works

By Jud Pyle, CFA, chief investment strategist for the Options News Network

American Water Works (AWK) did not announce significant news today, but at least one investor took a bullish stance on the water utilities company by boosting call volume.

The out-of-the-money June 22.50 calls changed hands nearly 6,500 times today and are home to current open interest of just 34 contracts, indicating they were traded to open. Within the first hour of trading Friday, block trades that added up to 5,750 contracts, changed hands at an average price of 42.50 cents. They hit the tape near the ask price, indicating a buyer.

This means bullish investors who bought the June 22.50 calls need AWK shares to expire higher than $22.93 to make money, unless of course the calls rise prior to expiration following a rise in the shares and the investor chooses to sell these contracts to book profit.

The June 22.50 calls have a delta of approximately 17, meaning for every dollar move in the underlying, these options should change by 17 cents. Given that AWK closed down 21 cents at $19.00, these calls should have declined roughly four cents, but the call-buying activity pushed the price higher than the delta would suggest. The options were unchanged at the close.

Throughout October, normal daily option volume in AWK was below 100 contracts a day, making today's volume highly unusual. Some analysts are suggesting that the next wave of smart investment opportunities comes in the form of utilities, especially water utilities companies. At least one investor tried to get ahead of the game by buying calls during this down market day. AWK earnings are due Nov. 9.